The municipal fiscal year is the same as the state's fiscal year—July 1 to June 30. But the property taxes a municipality collects during that year were assessed nine months before it began. Consequently, it assesses and levies the taxes according to different but overlapping cycles. The overlap could confuse property owners when the municipality assesses them for future taxes while billing them for taxes against prior assessments.

This report describes the cycles for assessing and collecting taxes as though they were a single, 22-month fiscal calendar. In doing so, it explains why municipalities begin levying property taxes nine months after assessing them.

ASSESSING PROPERTY TAXES

The gap between the dates municipalities assess and collect property taxes reflects the difference between the way these and other taxes are assessed and collected. Property taxes, like sales and use taxes, are based on something's value, in this case, land and buildings (real estate) and cars, cash registers, and other moveable things (personal property). But, while the other taxes are levied when a product or service is sold, property taxes are levied twice a year regardless of whether a property is sold in that year.

How do tax assessors determine the value of a property that has not sold? They estimate it using different appraisal methods, including comparable sales (i.e., determining the property's value based on the sale prices of similar recently sold properties.) It takes at least six months to determine and finalize the values, hear and decide appeals challenging those values, and process applications for exempting a portion of the assessed values from taxation.

Assessors generally complete these tasks by March 30, three months before the start of the next fiscal year but in time for the municipality to adopt that year's budget and tax rate. The municipality can do neither until the assessors finalize the October 1 values.

PROPERTY TAXES AND THE PROPERTY TAX RATE

Assessors determine property tax assessments, but do not set the tax rate or calculate the tax bills. The rate is set by the municipality's legislative body based partly on the total assessed value of taxable property. That total constitutes the tax base and affects the amount of spending the municipality can support. The tax base affects the tax burden: the burden could lighten if the tax base grows and municipal spending stays constant.

To set the rate, the legislative body first determines the amount of revenue the municipality expects from state and federal sources and the amount it expects to raise from fees and charges. It subtracts those amounts from the total proposed budget, yielding the spending the municipality must support with property taxes. The board calculates the tax rate by dividing that total by the tax base.

The tax rate is the ratio between the budget funded only with property tax revenue and the tax base. It is expressed in terms of mills or dollars per $1,000 of assessed value. If spending goes up and the tax base stays the same or shrinks, the tax rate increases. Alternatively, if spending stays the same or decreases and the tax base stays the same or increases, the tax rate stays the same or goes down.

Tax collectors use the assessments to calculate the tax bill, which equals the tax rate multiplied by a property's assessment. For example, if a home's fair market value is $100,000, the assessment equals $70,000. If the tax rate is 30 mills (.030), the tax bill is $2,100.

A 22-MONTH FISCAL CALENDAR

The nature of the property tax and the need to adopt a budget and a tax rate before a fiscal year begins explains the nine-month gap between when a municipality assesses property and collects taxes against the assessed value of that property. The assessment year starts on October 1, nine months before the fiscal year begins, and ends September 30, three months after the fiscal year ends.

The combined periods for assessing taxes and implementing the budget funded with those taxes is 22 months. Figure 1 is a timeline showing the combined period for FY Y (shaded in blue). That period is sandwiched between the latter half of prior year (FY X, shaded in white) and the beginning of the 22-month period for FY Z (shared in red). The accompanying notes explain the activities that occur during that 22-month period. The dates for FY Y are linked to an attachment detailing the requirements associated with these dates.

April-May: Budget proposals and negotiations for FY Z based on October 1 assessed values.

June: Budget and tax rate adopted and tax bills sent to owners

July 1: FY Z starts

1st installment of FY Z taxes due

KEY DATES AND TERMS FOR FY Y

October 1: Four months into a fiscal year, the municipality starts planning for the next fiscal year, FY Y (shaded in blue). The planning begins on October 1, when tax assessors determine property values as of that date. By law, municipalities must assess most property based on its fair market value. (The exemptions are farms, forests, and open spaces, which are assessed based on their current use value (see OLR 1999-R-1220).) In most years, that means updating last year's values to reflect any property improvements since the prior October 1. In some years, it means systematically revaluing all property to capture changes in fair market value. By law, municipalities must revalue property at least once every five years (see OLR 2005-R-0751 and 2006-R-0608).

January 1: This date is important for several reasons:

● As noted above, it is the deadline for paying the second installment of property taxes based on property values that were assessed on October 1, 15 months ago.

● It is also the date by which the assessors must finalize the assessments

February 1: This is property owners' deadline for notifying the board of assessment appeals if they want to appeal their assessments (2008-R-0181). It is also the application deadline for many property tax exemptions (see OLR 2006-R-0644).

April-May: This is the time when the municipal agencies submit their proposed budgets to the finance board or budget authority.

June: Municipalities must approve their next fiscal year budgets and tax rates by the end of this month and send out tax bills for the next fiscal year.

July 1: The new fiscal year begins on this date. It is also the deadline for paying the first property tax installment. The law imposes a penalty for late payments and authorizes several methods tax collectors can use to secure them (see OLR 2007-R-0517).

January 1: The second installment of the current year's property taxes is due on this date.